It is true that while many ambitious individuals open restaurants every year, not every location survives the tough competition out there. A study that the Bureau of Labor Statistics conducted found that the average lifespan of a restaurant in the United States of America is only 4.5 years!
Astonishing, isn’t it? For any restaurant to survive five whole years in the industry, there are regular assessments of a business that restaurant owners must conduct to check if they are meeting the industry benchmarks and their own internal goals. How do they do that? By measuring essential KPIs, of course! Only by measuring some specific restaurant KPIs, a business owner can figure out what works and what doesn’t work for them. So, what are some of them? Let’s get into it.
Sales are the most significant indicator when it comes to measuring the success of a business. Especially in the restaurant industry, sales have a massive impact on several key metrics: gross profit and break-even point.
What is the break-even point, you ask? It measures the sales volume that a business must have to back its initial investment. It helps business owners realize whether or not it will be profitable for them to invest more in the business, purchase newer equipment, or invest in a new business location.
It is measured so:
Break-even point = Total fixed costs / ((total sales -total variable costs) – total sales )
Gross profit is measured so:
Gross profit = total sales – the cost of goods sold
These sales help track how well any restaurant has done over a specific period. Restaurant owners can track this particular KPI by either day, week, month, or year. They will help identify trends and give the business managers a chance to measure the current performance of the restaurant against its past performance, especially during busy seasons of the year. With the help of long-term sales data, business owners can gain accurate forecasting of their future and reduce costs when planning.
It might not seem that way at
first, but the labor cost in a restaurant is a considerable expense. It includes employee wages, taxes, discounts, and employee benefits. Did you know that the typical cost of labor is 30 to 35 percent of a restaurant’s total revenue? As such, every restaurant owner must measure their labor costs very carefully to be aware of the cost of labor compared to the prime cost.
Restaurant owners need to study prime cost because it is a crucial KPI that makes up most of its variable costs.
It is measured so:
Prime cost = labor + cost of goods sold
Prime cost as % of sales = prime cost / total sales
High staff turnover is not good for a restaurant and can be challenging to tackle. The average restaurant employee stays at the job for approximately two months, whereas restaurant managers last about four months. The cost of employee turnover is $5,864 per employee. As a restaurant owner or manager, you must measure this critical KPI during labor reviews and keep an eye out to figure out ways to reduce your overall labor costs and increase employee retention.
Servers are an essential part of any restaurant’s team. They are the face and brand ambassadors of the restaurants as they directly contact your customers while they are being served. As such, you must work hard to ensure your employees are guided appropriately on providing the optimal customer experience within your restaurant. If you’d like to measure this specific KPI, you can do so in several ways:
- Per-Person Average (PPA)
- Number of Guest Served, Per-Server, Per-Hour
- Server Errors Per-Guest
Yes, most restaurants will fail, but only because the owners behind them don’t monitor the KPIs very closely. As such, you know this, and now you can work hard to avoid it. This way, you can make your business stand out from the competition in the market.
Are you interested in finding more? You can always reach out to our experts at TipHaus to find out more regarding what it takes to make a restaurant successful, whether it is about tips or points of sales! Reach out to us for more information now.